Item 8. Financial Statements and Supplementary Data
See accompanying Notes to Consolidated Financial Statements.
See accompanying Notes to Consolidated Financial Statements.
See accompanying Notes to Consolidated Financial Statements.
See accompanying Notes to Consolidated Financial Statements.
See accompanying Notes to Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Operations
The operations of Acme United Corporation (the “Company”) consist of three reportable segments. The operations of the Company are structured and evaluated based on geographic location. The three reportable segments operate in the United States (including Asian operations), Canada and Europe. Principal products across all segments are scissors, shears, knives, rulers, pencil sharpeners, first aid safety kits, and related products which are sold primarily to wholesale, contract and retail stationery distributors, office supply super stores, mass market retailers, industrial distributors, school supply distributors, drug store retailers, sporting goods stores, hardware chains and wholesale florists.
2. Accounting Policies
Estimates – The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The most sensitive and significant accounting estimates relate to customer rebates, valuation allowances for deferred income tax assets, obsolete and slow-moving inventories, potentially uncollectible accounts receivable, intangibles, accruals for income taxes and stock-based compensation. Actual results could differ from those estimates.
Principles of Consolidation – The consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly owned by the Company. All significant intercompany accounts and transactions are eliminated in consolidation.
Translation of Foreign Currency – For foreign operations whose functional currencies are not U.S. dollars, assets and liabilities are translated at rates in effect at the end of the year; revenues and expenses are translated at average rates in effect during the year. Resulting translation adjustments are made directly to accumulated other comprehensive income. Foreign currency transaction gains and losses are recognized in operating results. Included in other expense were foreign currency transaction losses of $239,753 in 2021 and foreign currency transaction gains of $96,372 in 2020.
Cash Equivalents – Investments with an original maturity of three months or less, as well as time deposits and certificates of deposit that are readily redeemable at the date of purchase, are considered cash equivalents.
Accounts Receivable – Accounts receivable are shown less an allowance for doubtful accounts of $1,007,187 at December 31, 2021 and $1,151,715 at December 31, 2020.
Inventories – Inventories are stated at the lower of cost, or net realizable value, determined by the first-in, first-out method.
Property, Plant and Equipment, and Depreciation – Property, plant and equipment is recorded at cost. Depreciation is computed by the straight-line method over the estimated useful lives of the assets. The range of estimated useful lives of these assets are as follows: buildings useful lives range from 10 to 39 years; machinery and equipment useful lives range from 3 to 10 years.
Intangible Assets and Goodwill – Intangible assets with finite useful lives are recorded at cost upon acquisition and amortized over the term of the related contract, if any, or useful life, as applicable. Intangible assets held by the Company with finite useful lives include patents and trademarks. Patents and trademarks are amortized over their estimated useful lives. The weighted average amortization period for intangible assets at December 31, 2021 was 9 years. The Company periodically reviews the values recorded for intangible assets and goodwill to assess recoverability from future operations whenever events or changes in circumstances indicate that its carrying amounts may not be recoverable. At December 31, 2021 and 2020, the Company assessed the recoverability of its long-lived assets and goodwill and believed that there were no events or circumstances present that would require a test of recoverability on those assets. As a result, there was no impairment of the carrying amounts of such assets and no reduction in their estimated useful lives.
Deferred Income Taxes – Deferred income taxes are provided for the differences between the financial statement and tax bases of assets and liabilities, and on operating loss carryovers, using tax rates in effect in years in which the differences are expected to reverse.
Leases – The Company determines if an arrangement is an operating lease at inception. Leases with an initial term of 12 months or less are not recorded on the balance sheet. All other leases are recorded on the balance sheet with right-of-use (“ROU”) assets representing the right to use the underlying asset for the lease term and lease liabilities representing the obligation to make lease payments arising from the lease.
Lessees and lessors may elect to apply a package of practical expedients permitting entities not to reassess: (i) whether any expired or existing contracts are or contain leases; (ii) lease classification for any expired or existing leases; and (iii) whether initial direct costs for any expired or existing leases qualify for capitalization under the amended guidance. These practical expedients must be elected as a package and consistently applied. The Company has elected to apply the package of practical expedients upon adoption.
27
ROU assets and lease liabilities are recognized at commencement date of the lease based on the present value of lease payments over the lease term and include options to extend or terminate the lease when they are reasonably certain to be exercised. As most of our leases do not provide an implicit rate, the present value of lease payments is determined primarily using our incremental borrowing rate based on the information available at the lease commencement date. The incremental borrowing rate is the rate of interest that we would have to pay to borrow on a collateralized basis over a similar term on an amount equal to the lease payments in a similar economic environment. Lease arrangements with lease and non-lease components are generally accounted for as a single lease component. The Company's operating lease expense is recognized on a straight-line basis over the lease term.
Revenue Recognition – The Company's revenues result from the sale of goods or services and reflect the consideration to which the Company expects to be entitled. The Company records revenue based on a five-step model in accordance with Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers ("ASC 606"). For its contracts with customers, the Company identifies the performance obligations (goods or services), determines the transaction price, allocates the contract transaction price to the performance obligations, and recognizes the revenue when (or as) the performance obligation is transferred to the customer. A good or service is transferred when (or as) the customer obtains control of that good or service. Depending on the contractual terms of each customer, revenue is recognized either at the time of shipment or upon delivery. When revenue is recorded, estimates of returns are made and recorded as a reduction of revenue. Customer rebates and incentives earned based on promotional programs in place volume of purchases or other factors are also estimated at the time of revenue recognition and recorded as a reduction of that revenue. Refer to Note 9 – Revenue from Contracts with Customers, in the notes to consolidated financial statements in this report for a more detailed discussion.
Shipping Costs – The costs of shipping product to our customers ($10,071,710 in 2021 and $7,486,600 in 2020) are included in selling, general and administrative expenses. The increase in shipping costs is primarily related to higher sales volume, increased shipping rates and incremental expedited costs related the installation of the new warehouse management system in our Rocky Mount distribution center.
Advertising Costs – The Company expenses the production costs of advertising the first time that the related advertising takes place. Advertising costs ($976,268 in 2021 and $1,084,261 in 2020) are included in selling, general and administrative expenses.
Subsequent Events – The Company has evaluated events and transactions subsequent to December 31, 2021 through the date the consolidated financial statements were included in this Form 10-K and filed with the SEC.
Concentration – The Company performs ongoing credit evaluations of its customers and generally does not require collateral for the extension of credit. Allowances for credit losses are provided and have been within management's expectations. The Company had two customers in 2021 and 2020, respectively, that individually exceeded 10% of consolidated net sales. Net sales to these customers were approximately 17% and 11% of consolidated net sales in 2021 and 18% and 12% in 2020.
Recently Issued and Adopted Accounting Standards
In December 2019, the Financial Accounting Standards Board (FASB) issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The update eliminates, clarifies and modifies certain guidance related to the accounting for income taxes. ASU 2019-12 is effective for annual reporting periods beginning after December 15, 2020. The adoption of ASU 2019-12 did not have a material effect on the Company’s consolidated financial statements.
3. Inventories
Inventories consisted of:
|
|
December 31, |
|
|
|
2021 |
|
|
2020 |
|
Finished goods |
|
$ |
40,412,875 |
|
|
$ |
40,287,710 |
|
Work in process |
|
|
88,847 |
|
|
|
67,208 |
|
Materials and supplies |
|
|
13,050,532 |
|
|
|
10,349,279 |
|
Inventories: |
|
$ |
53,552,254 |
|
|
$ |
50,704,197 |
|
Inventories are stated net of valuation allowances for slow moving and obsolete inventory of $1,554,217 as of December 31, 2021 and $1,471,925 as of December 31, 2020.
28
4. Intangible Assets and Goodwill
The Company’s intangible assets and goodwill consisted of:
|
|
December 31, |
|
|
|
2021 |
|
|
2020 |
|
First Aid Only Tradename |
|
$ |
3,410,000 |
|
|
$ |
3,410,000 |
|
First Aid Only Customer List |
|
|
5,500,010 |
|
|
|
5,500,010 |
|
DMT Trademarks |
|
|
1,387,000 |
|
|
|
1,387,000 |
|
DMT Customer List |
|
|
1,369,000 |
|
|
|
1,369,000 |
|
DMT Non-Compete |
|
|
183,000 |
|
|
|
183,000 |
|
Slice License Agreement |
|
|
379,921 |
|
|
|
379,921 |
|
Patents |
|
|
2,271,980 |
|
|
|
2,271,980 |
|
Trademarks |
|
|
663,698 |
|
|
|
663,698 |
|
Pac-Kit Tradename, Customer List |
|
|
1,500,000 |
|
|
|
1,500,000 |
|
Spill Magic Customer List |
|
|
3,965,000 |
|
|
|
3,965,000 |
|
Spill Magic Trademarks |
|
|
1,034,000 |
|
|
|
1,034,000 |
|
Spill Magic Non-Compete |
|
|
67,111 |
|
|
|
67,111 |
|
C-Thru Customer List |
|
|
1,050,000 |
|
|
|
1,050,000 |
|
FAC |
|
|
1,332,963 |
|
|
|
1,332,963 |
|
Med-Nap |
|
|
2,920,145 |
|
|
|
2,920,145 |
|
Subtotal |
|
|
27,033,828 |
|
|
|
27,033,828 |
|
Less: Accumulated Amortization |
|
|
9,803,299 |
|
|
|
8,312,405 |
|
Intangible Assets |
|
$ |
17,230,529 |
|
|
$ |
18,721,423 |
|
Goodwill |
|
$ |
4,799,829 |
|
|
$ |
4,799,829 |
|
Total: |
|
$ |
22,030,358 |
|
|
$ |
23,521,252 |
|
Amortization expense for patents and trademarks for the years ended December 31, 2021 and 2020 were $1,490,894 and $1,324,423, respectively. The estimated aggregate amortization expense for each of the next five succeeding years, calculated on a similar basis, is as follows: 2022 - $1,459,787; 2023 - $1,455,590; 2024 - $1,450,400; 2025 - $1,488,207; and 2026 - $1,447,427.
5. Other Accrued Liabilities
The Company’s other current and non-current accrued liabilities consisted of:
|
|
December 31, |
|
|
|
2021 |
|
|
2020 |
|
Customer Rebates |
|
$ |
5,413,829 |
|
|
$ |
6,068,294 |
|
Accrued Compensation |
|
|
1,585,938 |
|
|
|
3,072,375 |
|
Dividend Payable |
|
|
457,745 |
|
|
|
434,546 |
|
Income Taxes Payable |
|
|
564,172 |
|
|
|
459,596 |
|
Other |
|
|
1,887,793 |
|
|
|
1,425,213 |
|
Total: |
|
$ |
9,909,477 |
|
|
$ |
11,460,024 |
|
6. Profit Sharing
The Company has a qualified, 401k plan covering substantially all of its United States employees. Annual Company contributions to this plan are determined by the Company’s Compensation Committee. For the years ended December 31, 2021 and 2020, the Company contributed 50% of employee’s contributions, up to the first 6% contributed by each employee. Total contribution expense under this 401k plan was $419,298 in 2021 and $369,890 in 2020.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted, which included provisions, which among others, provide temporary relief for those retirement plan participants affected by the coronavirus disease (COVID-19). Participants who met certain criteria could take a penalty-free hardship withdrawal, borrow from their accounts at higher limits and suspend making payments on their participant loans until 2021. During the period between March 27, 2020 and September 22, 2020, participants impacted by COVID-19 (as defined in the Plan document) could borrow from their account up to the lesser of $100,000 or the vested account balance and could suspend loan repayments due during that period until January 2021.
The CARES Act also removed the 10% early withdrawal penalty for a coronavirus-related distribution up to $100,000 made during 2020. Participants who took a coronavirus-related distribution could spread the income over a three-year period for income tax purposes or avoid
29
income taxes if the distribution is repaid with the three-year period following the distribution. The voluntary adoption of this provision by the Plan was effective March 27, 2020. As of December 31, 2020, the Plan has not been formally amended, as a formal amendment is not required until the plan year ended December 31, 2022. The Plan intends to formally adopt the amendment upon a future restatement of the Plan, prior to this date.
7. Income Taxes
The amounts of income tax expense (benefit) reflected in operations is as follows:
|
|
2021 |
|
|
2020 |
|
Current: |
|
|
|
|
|
|
|
|
Federal |
|
$ |
4,980 |
|
|
$ |
880,149 |
|
State |
|
|
153,937 |
|
|
|
159,909 |
|
Foreign |
|
|
870,739 |
|
|
|
788,314 |
|
Total: |
|
$ |
1,029,656 |
|
|
$ |
1,828,372 |
|
|
|
|
|
|
|
|
|
|
Deferred: |
|
|
|
|
|
|
|
|
Federal |
|
$ |
401,196 |
|
|
$ |
(59,801 |
) |
State |
|
|
88,403 |
|
|
|
(40,609 |
) |
Total: |
|
|
489,599 |
|
|
|
(100,410 |
) |
Total Income Tax Expense: |
|
$ |
1,519,255 |
|
|
$ |
1,727,962 |
|
The current state tax provision was comprised of taxes on income, the minimum capital tax and other franchise taxes related to the jurisdictions in which the Company's facilities are located.
A summary of United States and foreign income before income taxes follows:
|
|
2021 |
|
|
2020 |
|
United States |
|
$ |
9,721,756 |
|
|
$ |
4,524,432 |
|
Foreign |
|
|
5,453,178 |
|
|
|
5,302,296 |
|
Total: |
|
$ |
15,174,934 |
|
|
$ |
9,826,728 |
|
As discussed in Note 10 below, for segment reporting, direct import sales are included in the United States segment. However, the revenues are earned by our Hong Kong subsidiary and related income taxes are paid in Hong Kong whose rate approximates 16.5%. As such, income of the Asian subsidiary is included in the foreign income before taxes.
The following schedule reconciles the amounts of income taxes computed at the United States statutory rates to the actual amounts reported in operations:
|
|
2021 |
|
|
2020 |
|
Federal income taxes at 21% statutory rate |
|
$ |
2,915,698 |
|
|
$ |
1,864,097 |
|
State and local taxes, net of federal income tax effect |
|
|
115,855 |
|
|
|
89,842 |
|
Permanent items |
|
|
(1,508,877 |
) |
|
|
(99,877 |
) |
Foreign tax rate difference |
|
|
(3,421 |
) |
|
|
(126,100 |
) |
Provision for income taxes: |
|
$ |
1,519,255 |
|
|
$ |
1,727,962 |
|
The following summarizes deferred income tax assets and liabilities:
|
|
2021 |
|
|
2020 |
|
Deferred income tax liabilities: |
|
|
|
|
|
|
|
|
Plant, property and equipment |
|
$ |
1,916,218 |
|
|
$ |
1,556,398 |
|
|
|
|
1,916,218 |
|
|
|
1,556,398 |
|
Deferred income tax assets: |
|
|
|
|
|
|
|
|
Asset valuations |
|
|
983,055 |
|
|
|
992,101 |
|
Other |
|
|
333,883 |
|
|
|
454,076 |
|
|
|
|
1,316,938 |
|
|
|
1,446,177 |
|
Net deferred income tax liability: |
|
$ |
599,280 |
|
|
$ |
110,221 |
|
30
On January 22, 2018, the FASB released guidance on the accounting for tax on the global intangible low-taxed income (“GILTI”) provisions of the Act. The GILTI provisions impose a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations. The Company considers any potential GILTI as an expense in the period the tax is incurred.
In 2021, the Company evaluated its tax positions for years which remain subject to examination by major tax jurisdictions, in accordance with the requirements of ASC 740 and as a result, concluded no adjustment was necessary. The Company files income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions. The Company’s evaluation of uncertain tax positions was performed for the tax years ended December 31, 2018 and forward, the tax years which remain subject to examination by major tax jurisdictions as of December 31, 2021.
Due to the uncertain nature of the realization of the Company's deferred income tax assets based on past performance of its German subsidiary and net loss carry forward expiration dates, the Company has recorded a valuation allowance for the amount of deferred income tax assets which are not expected to be realized. This valuation allowance, all of which is related to deferred tax assets resulting from net operating losses of the Company’s German subsidiary, is subject to periodic review, and, if the allowance is reduced, the tax benefit will be recorded in future operations as a reduction of the Company's tax expense.
8. Long-Term Debt and Shareholders’ Equity
Long-term debt consists of (i)borrowings under the Company’s revolving loan agreement with HSBC Bank, N.A and (ii) amounts outstanding under the fixed rate mortgage related to the Company’s manufacturing and distribution facilities in Rocky Mount, NC and Vancouver, WA. The revolving loan agreement provides for borrowings of up to $50 million at Prime Rate less 1.25%. The credit facility has an expiration date of May 24, 2023. The Company must pay a facility fee, payable quarterly, in an amount equal to two tenths of one percent (.20%) per annum of the average daily unused portion of the revolving credit line. The facility is intended to provide liquidity for growth, share repurchases, dividends, acquisition and other business activities. Under the revolving loan agreement, the Company is required to maintain specific amounts of tangible net worth, a specified debt to net worth ratio and a fixed charge coverage ratio and must have annual net income greater than zero, measured as of the end of each fiscal year. December 31, 2021, the Company was in compliance with the covenants then in effect under the loan agreement.
As of December 31, 2021, $33,037,172 was outstanding and $16,962,828 was available for borrowing under the Company’s revolving loan agreement.
The Company’s manufacturing and distribution facilities in Rocky Mount, NC and Vancouver, WA were financed by a fixed rate mortgage with HSBC Bank, N.A. at a fixed interest rate of 3.8%. The Company entered into the agreement on December 1, 2021. Commencing on January 1, 2022, payments of principal and interest are due monthly, with all amounts outstanding due on maturity on December 1, 2031. Long-term debt consisted of the following at December 31, 2021:
|
|
|
|
|
Mortgage payable - HSBC Bank N.A. |
|
|
11,620,000 |
|
|
|
|
|
|
Less debt issuance costs |
|
|
(150,541 |
) |
|
|
|
|
|
|
|
|
11,469,459 |
|
|
|
|
|
|
Less current maturities |
|
|
388,536 |
|
|
|
|
|
|
Long-term mortgage payable, less current maturities |
|
|
11,080,923 |
|
Minimum annual mortgage payments are due as follows: 2022 - $390,521; 2023 - $404,588; 2024 - $419,309; 2025 - $436,949; 2026 - $454,112; and thereafter - $9,514,521.
On November 14, 2019, the Company announced a Common Stock repurchase program of up to a total of 200,000 shares. The program does not have an expiration date. During the twelve months ended December 31, 2021, the Company repurchased 43,214 shares of its Common Stock, 3,579 shares under the repurchase program announced in 2010 and 39,635 shares under the repurchase plan announced in 2019. As of December 31, 2021, a total of 160,365 shares may be purchased in the future under the repurchase program announced in 2019.
On May 7, 2020, the Company received a two-year loan (the “PPP Loan”) from HSBC Bank, N.A., the lender, in the amount of $3,508,047 under the Paycheck Protection Program established by the Coronavirus Aid, Relief and Economic Security Act (CARES Act).
Under the CARES Act, all or a portion of the PPP Loan was eligible to be forgiven by the U.S. Small Business Administration (“SBA”) and the lender, upon application by the Company, provided that the Company shall have used the loan proceeds for certain eligible purposes. The PPP Loan was fully forgiven by the SBA and on June 9, 2021, payment in the amount of $3,508,047 was made by the SBA to the lender. The Company recorded the amount forgiven as income for the year ending December 31, 2021.
31
The carrying value of the Company’s bank debt is a reasonable estimate of fair value because of the nature of its payment terms and maturity.
9. Revenue from Contracts with Customers
Nature of Goods and Services
The Company recognizes revenue from the sales of a broad line of products that are grouped into two main categories: (i) first aid and safety; and (ii) cutting, sharpening and measuring. The first aid and safety category includes first aid kits and refills, over-the-counter medications and a variety of safety products. The cutting and sharpening category includes scissors, knives, paper trimmers, pencil sharpeners and other sharpening tools. Revenue recognition is evaluated through the following five steps: (i) identification of the contract or contracts with a customer; (ii) identification of the performance obligations in the contract; (iii) determination of the transaction price; (iv) allocation of the transaction price in the contract; and (v) recognition of revenue when or as a performance obligation is satisfied.
When Performance Obligations Are Satisfied
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Revenue is generated by the sale of the Company’s products to its customers. Sales contracts (purchase orders) generally have a single performance obligation that is satisfied at a point in time, with shipment or delivery, depending on the terms of the underlying contract. Revenue is measured based on the consideration specified in the contract. The amount of consideration we receive and revenue we recognize is impacted by incentives ("customer rebates"), including sales rebates, which are generally tied to sales volume levels, in-store promotional allowances, shared media and customer catalogue allowances and other cooperative advertising arrangements; freight allowance programs offered to our customers; and allowance for returns and discounts. The Company generally recognizes customer rebate costs as a deduction to gross sales at the time that the associated revenue is recognized.
Significant Payment Terms
Payment terms for each customer are dependent on the agreed upon contractual repayment terms. Typically between 30 and 90 days, but they vary dependent on the size of the customer and its risk profile to the Company. Some customers receive discounts for early payment.
Product Returns
The Company accepts product returns in the normal course of business. The Company estimates reserves for returns and the related refunds to customers based on historical experience. Reserves for returned merchandise are included as a component of “Accounts receivables” in the consolidated balance sheets.
Practical Expedient Usage and Accounting Policy Elections
For the Company’s contracts that have an original duration of one year or less, the Company uses the practical expedient in ASC 606-10-32-18 applicable to such contracts and accordingly, does not consider the time value of money in relation to significant financing components. The effect of applying this practical expedient election did not have an impact on the Company’s consolidated financial statements.
Per ASC 606-10-25-18B, the Company has elected to account for shipping and handling activities that occur after the customer has obtained control as a fulfillment activity instead of a performance obligation. Furthermore, shipping and handling activities performed before transfer of control of the product also do not constitute a separate and distinct performance obligation.
The Company has elected to exclude from the transaction price those amounts which relate to sales and other taxes that are assessed by governmental authorities and that are imposed on and concurrent with a specific revenue-producing transaction and collected by the Company from a customer.
Applying the practical expedient in ASC 340-40-25-4 – Other Assets and Deferred Costs, the Company recognizes the incremental costs of obtaining contracts as an expense when incurred. These costs are included in “Selling, general and administrative expenses.” The effect of applying this practical expedient did not have a material impact on the Company’s consolidated financial statements in the year ended December 31, 2020.
32
Disaggregation of Revenues
The following table represents external net sales disaggregated by product category, by segment:
For the twelve months ended December 31, 2021
(amounts in 000's)
|
|
United States |
|
|
Canada |
|
|
Europe |
|
|
Total |
|
First Aid and Safety |
|
$ |
82,955 |
|
|
$ |
7,012 |
|
|
$ |
1,253 |
|
|
$ |
91,220 |
|
Cutting, Sharpening and Measuring |
|
|
69,520 |
|
|
|
7,329 |
|
|
|
14,019 |
|
|
|
90,868 |
|
Total Net Sales |
|
$ |
152,475 |
|
|
$ |
14,341 |
|
|
$ |
15,272 |
|
|
$ |
182,088 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the twelve months ended December 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(amounts in 000's) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
|
Canada |
|
|
Europe |
|
|
Total |
|
First Aid and Safety |
|
$ |
74,386 |
|
|
$ |
4,552 |
|
|
$ |
983 |
|
|
$ |
79,921 |
|
Cutting, Sharpening and Measuring |
|
|
65,805 |
|
|
|
6,434 |
|
|
|
11,843 |
|
|
|
84,082 |
|
Total Net Sales |
|
$ |
140,191 |
|
|
$ |
10,986 |
|
|
$ |
12,826 |
|
|
$ |
164,003 |
|
10. Segment Information
The Company reports financial information based on the organizational structure used by the Company’s chief operating decision makers for making operating and investment decisions and for assessing performance. The Company’s reportable business segments consist of: (1) United States; (2) Canada; and (3) Europe. As described below, the activities of the Company’s Asian operations are closely linked to those of the U.S. operations; accordingly, the Company’s chief operating decision makers review the financial results of both on a consolidated basis, and the results of the Asian operations have been aggregated with the results of the United States operations to form one reportable segment called the “United States segment” or “U.S. segment”. Each reportable segment derives its revenue from the sales of cutting devices, measuring instruments and safety products for school, office, home, hardware, sporting and industrial use.
Domestic sales orders are filled primarily from the Company’s distribution centers and facilities in North Carolina, Washington, Massachusetts, Tennessee, Florida and California. The Company is responsible for the costs of shipping, insurance, customs clearance, duties, storage and distribution related to such products. Orders filled from the Company’s inventory are generally for less than container-sized lots.
Direct import sales are products sold by the Company’s Asian subsidiary, directly to major U.S. retailers who take ownership of the products in Asia. These sales are completed by delivering product to the customers’ common carriers at the shipping points in Asia. Direct import sales are made in larger quantities than domestic sales, typically full containers. Direct import sales represented approximately 9% and 10% of the Company’s total net sales in 2021 and 2020, respectively.
The Chief Operating Decision Maker evaluates the performance of each operating segment based on segment revenues and operating income. Segment revenues are defined as total revenues, including both external customer revenue and inter-segment revenue. Segment operating earnings are defined as segment revenues, less cost of goods sold and operating expenses. Identifiable assets by segment are those assets used in the respective reportable segment’s operations. Inter-segment amounts are eliminated to arrive at consolidated financial results.
The following table sets forth certain financial data by segment for the fiscal years ended December 31, 2021 and 2020:
Financial data by segment:
(000’s omitted)
Year Ended December 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
|
Canada |
|
|
Europe |
|
Consolidated |
|
Net sales |
$ |
152,475 |
|
|
$ |
14,341 |
|
|
$ |
15,272 |
|
$ |
182,088 |
|
Operating income |
|
9,521 |
|
|
|
1,893 |
|
|
|
1,356 |
|
|
12,770 |
|
Assets |
|
125,521 |
|
|
|
9,100 |
|
|
|
9,818 |
|
|
144,439 |
|
Additions to property, plant and equipment |
|
6,309 |
|
|
|
10 |
|
|
|
54 |
|
|
6,373 |
|
Depreciation and amortization |
|
3,822 |
|
|
|
147 |
|
|
|
80 |
|
|
4,049 |
|
33
Year Ended December 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
|
Canada |
|
|
Europe |
|
Consolidated |
|
Net sales |
$ |
140,191 |
|
|
$ |
10,986 |
|
|
$ |
12,826 |
|
$ |
164,003 |
|
Operating income |
|
8,872 |
|
|
|
1,332 |
|
|
|
1,209 |
|
|
11,413 |
|
Assets |
|
113,831 |
|
|
|
7,432 |
|
|
|
8,605 |
|
|
129,868 |
|
Additions to property, plant and equipment |
|
2,386 |
|
|
|
34 |
|
|
|
149 |
|
|
2,569 |
|
Depreciation and amortization |
|
3,668 |
|
|
|
95 |
|
|
|
78 |
|
|
3,841 |
|
The following is a reconciliation of segment operating income to consolidated income before taxes:
|
|
2021 |
|
|
2020 |
|
Total operating income |
|
$ |
12,770 |
|
|
$ |
11,413 |
|
Interest expense, net |
|
|
908 |
|
|
|
920 |
|
Other (income) expense |
|
|
(3,313 |
) |
|
|
666 |
|
Consolidated income before taxes |
|
$ |
15,175 |
|
|
$ |
9,827 |
|
The table below presents revenue by geographic area. Revenues are attributed to countries based on location of the customer.
Revenues |
|
2021 |
|
|
2020 |
|
United States |
|
$ |
151,205 |
|
|
$ |
138,921 |
|
International: |
|
|
|
|
|
|
|
|
Canada |
|
|
14,341 |
|
|
|
10,986 |
|
Europe |
|
|
15,272 |
|
|
|
12,826 |
|
Other |
|
|
1,270 |
|
|
|
1,270 |
|
Total International |
|
$ |
30,883 |
|
|
$ |
25,082 |
|
Total Revenues |
|
$ |
182,088 |
|
|
$ |
164,003 |
|
11. Stock Option Plans
The Company grants stock options under the 2012 Employee Stock Option Plan (the “2012 Employee Plan”) and under the 2017 Non-Salaried Director Stock Option Plan (the “2017 Director Plan”). The Company also has two plans under which the Company no longer grants options but under which certain options remain outstanding: the 2005 Non-Salaried Director Stock Option Plan (the “2005 Director Plan”).
The 2012 Employee Plan, which became effective April 23, 2012, provides for the issuance of incentive and nonqualified stock options at an exercise price equal to the fair market value of the Common Stock on the date the option is granted. The terms of the options granted are subject to the provisions of the 2012 Employee Plan. Options granted under the 2012 Employee Plan vest 25% one day after the first anniversary of the grant date and 25% one day after each of the next three anniversaries. As of December 31, 2021, the number of shares available for grant under the 2012 Employee Plan was 18,650. Under the terms of the 2012 Employee Plan, no option may be granted under that plan after the tenth anniversary of the adoption of the plan. Options outstanding under the Company’s 2002 Employee Stock Option Plan have the same vesting schedule as the 2012 Employee Plan. On February 22, 2022, the Board of Directors, approved the Acme United 2022 Employee Stock Option Plan (the “2022 Plan”), with the adoption and effectiveness of the 2022 Plan being subject to the approval of the shareholders of the Company at the April 25, 2022 Annual Meeting.
The 2017 Director Plan provides for the issuance of stock options for up to a total of 50,000 shares of the Company's common stock to non-salaried directors. Under the 2017 Director Plan, Directors elected after the effective date and at subsequent Annual Meetings who have not received any prior grant under this or previous plans shall receive an initial grant of an option to purchase 5,000 shares of Common Stock (the “Initial Option”). Each year, each elected Director not receiving an Initial Option will receive an option to purchase 5,000 shares of Common Stock (the “Annual Option”). The Initial Option vests 25% on the date of grant and 25% on the anniversary of the grant date in each of the following 3 years. Each Annual Option becomes fully exercisable one day after the date of grant. The exercise price of each option granted equals the fair market value of the Common Stock on the date the option is granted, and expires ten (10) years from the date of grant. As provided in the Director Plan, no options may be granted under the 2017 Director Plan after the tenth anniversary of the adoption of the Plan, i.e., after April 24, 2027. As of December 31, 2021, there were no shares available for grant under the 2017 Director Plan.
The 2005 Director Plan, as amended, provided for the issuance of stock options for up to a total of 180,000 shares of the Company's common stock to non-salaried directors. Under the 2005 Director Plan, Directors elected on April 25, 2005 and at subsequent Annual Meetings who had not received any prior grant under this or previous plans received an initial grant of an option to purchase 5,000 shares of Common Stock (the “Initial Option”). Each year, each elected Director not receiving an Initial Option received a 5,000 share option (the “Annual Option”). The Initial Option vested 25% on the date of grant and 25% on the anniversary of the grant date in each of the following 3 years. Each Annual Option became fully exercisable one day after the date of grant. The exercise price of each option granted equaled the fair market value of the Common Stock on the date the option was granted, and expired ten (10) years from the date of grant. As provided in the Director Plan, no options could be granted under the 2005 Director Plan after the tenth anniversary of the adoption of the Plan, i.e., after April 25, 2015.
34
The Company has amended certain of its stock option plans for both employees and directors to permit options to be exercised on a net basis and receive either cash or shares of the Company’s Common Stock. Specifically, optionees may, at the time of exercise of an option and subject to the consent of the Company, elect either (i) to receive from the Company cash in an amount equal to the number of shares of Common Stock subject to the option (or portion thereof) that is being exercised multiplied by the excess of (a) the fair market value per share over (b) the exercise price per share of the option (a “net cash settlement”); or (ii) to make payment of the exercise price of the option by reduction in the number of shares of Common Stock otherwise deliverable upon exercise of such option by the number of shares having an aggregate fair market value equal to the total exercise price of the option (or portion thereof). In 2021 and 2020, the Company paid a total of approximately $342,285 and $1,644,118 respectively, to optionees who had elected a net cash settlement of their respective share options. In 2021, the Company issued 7,726 shares to optionees who had elected a net share settlement. There were no such elections in 2020.
A summary of changes in options issued under the Company’s stock option plans follows:
|
|
2021 |
|
|
2020 |
|
Options outstanding at the beginning of the year |
|
|
1,487,925 |
|
|
|
1,363,694 |
|
Options granted |
|
|
299,750 |
|
|
|
280,750 |
|
Options forfeited |
|
|
(5,525 |
) |
|
|
(9,125 |
) |
Options exercised |
|
|
(245,098 |
) |
|
|
(147,394 |
) |
Options outstanding at the end of the year |
|
|
1,537,052 |
|
|
|
1,487,925 |
|
Options exercisable at the end of the year |
|
|
971,568 |
|
|
|
985,475 |
|
Common stock available for future grants at the end of the year |
|
|
18,650 |
|
|
|
104,372 |
|
Weighted average exercise price per share: |
|
|
|
|
|
|
|
|
Granted |
|
$ |
38.38 |
|
|
$ |
23.05 |
|
Forfeited |
|
|
23.01 |
|
|
|
21.72 |
|
Exercised |
|
|
15.15 |
|
|
|
14.51 |
|
Outstanding |
|
|
24.60 |
|
|
|
20.26 |
|
Exercisable |
|
|
21.33 |
|
|
|
18.99 |
|
A summary of options outstanding as December 31, 2021 is as follows:
Options Outstanding |
|
|
|
|
Options Exercisable |
|
Range of Exercise Prices |
|
Number
Outstanding |
|
|
Weighted-
Average
Remaining
Contractual
Life (Years) |
|
Weighted-
Average
Exercise
Price |
|
|
|
|
Number
Exercisable |
|
|
Weighted-
Average
Exercise
Price |
|
$9.26 to $16.08 |
|
|
133,477 |
|
|
2 |
|
$ |
13.59 |
|
|
|
|
|
133,477 |
|
|
$ |
13.59 |
|
$16.09 to $21.35 |
|
|
250,250 |
|
|
5 |
|
|
18.40 |
|
|
|
|
|
199,250 |
|
|
|
18.09 |
|
$21.36 to $24.86 |
|
|
692,575 |
|
|
7 |
|
|
22.85 |
|
|
|
|
|
452,841 |
|
|
|
22.72 |
|
$24.87 to $31.56 |
|
|
161,000 |
|
|
6 |
|
|
25.30 |
|
|
|
|
|
161,000 |
|
|
|
25.30 |
|
$31.57 to $39.56 |
|
|
299,750 |
|
|
9 |
|
|
38.38 |
|
|
|
|
|
25,000 |
|
|
|
37.92 |
|
|
|
|
1,537,052 |
|
|
|
|
|
|
|
|
|
|
|
971,568 |
|
|
|
|
|
The weighted average remaining contractual life of all outstanding stock options is 6 years.
Stock-Based Compensation
Stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the requisite service period, which is generally the vesting period. The Company uses the Black-Scholes option pricing model to determine the fair value of employee and non-employee director stock options. The determination of the fair value of stock-based payment awards on the date of grant, using an option-pricing model, is affected by the Company’s stock price as well as assumptions regarding a number of complex and subjective variables. These assumptions include estimating the length of time employees will retain their vested stock options before exercising them (“expected term”), the estimated volatility of the Company’s Common Stock price over the expected term (“volatility”) and the number of options that will not fully vest in accordance with applicable vesting requirements (“forfeitures”).
The Company estimates the expected term of options granted by evaluating various factors, including the vesting period, historical employee information, as well as current and historical stock prices and market conditions. The Company estimates the volatility of its common stock by calculating historical volatility based on the closing stock price on the last day of each of the 84 months leading up to the month the option was granted. The risk-free interest rate that the Company uses in the option valuation model is the interest rate on U.S. Treasury zero-coupon bond issues with remaining terms similar to the expected term of the options granted. Historical information was the basis for calculating the dividend yield. The Company is required to estimate forfeitures at the time of grant and to revise those estimates in subsequent periods if actual forfeitures differ from those estimates. The Company used a mix of historical data and future assumptions to estimate pre-vesting option forfeitures and to record stock-based compensation expense only for those awards that are expected to vest. All stock-based payment awards are amortized over the requisite service periods of the awards, which are generally the vesting periods.
35
The assumptions used to value option grants for the twelve months ended December 31, 2021 and December 31, 2020 were as follows:
|
|
2021 |
|
2020 |
Expected life in years |
|
6 - 7 |
|
6 |
Interest rate |
|
.42 - 1.11% |
|
.30 - 1.63% |
Volatility |
|
.397 - .415 |
|
.358 - .375 |
Dividend yield |
|
1.3 - 1.8% |
|
2.0 - 2.2% |
Total stock-based compensation recognized in the Company’s consolidated statements of operations for the years ended December 31, 2021 and 2020 was $1,806,758 and $1,259,079, respectively. At December 31, 2021, there was approximately $3,963,334 of unrecognized compensation cost, adjusted for estimated forfeitures, related to non-vested stock-based payments granted to the Company’s employees. As of December 31, 2021, the remaining unamortized expense is expected to be recognized over a weighted average period of 3 years.
The weighted average fair value at the date of grant for options granted during 2021 and 2020 was $13.63 and $6.59 per option, respectively. The aggregate intrinsic value of outstanding options was $15,436,026 at December 31, 2021. The aggregate intrinsic value of exercisable options was $12,128,507 at December 31, 2021. The aggregate intrinsic value of options exercised during 2021 was $6,582,918.
12. Earnings Per Share
The calculation of earnings per share follows:
|
|
2021 |
|
|
2020 |
|
Numerator: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
13,655,679 |
|
|
$ |
8,098,766 |
|
Denominator: |
|
|
|
|
|
|
|
|
Denominator for basic earnings per share: |
|
|
|
|
|
|
|
|
Weighted average shares outstanding |
|
|
3,471,374 |
|
|
|
3,342,630 |
|
Effect of diluted employee stock options |
|
|
483,861 |
|
|
|
166,867 |
|
Denominator for dilutive earnings per share |
|
|
3,955,235 |
|
|
|
3,509,497 |
|
Basic earnings per share |
|
$ |
3.93 |
|
|
$ |
2.42 |
|
Diluted earnings per share |
|
$ |
3.45 |
|
|
$ |
2.31 |
|
For 2021 and 2020, respectively, 229,250 and 309,900 stock options were excluded from diluted earnings per share calculations because they would have been anti-dilutive.
13. Accumulated Other Comprehensive Loss
The components of accumulated other comprehensive loss follow:
|
|
Foreign currency
translation
adjustment |
|
|
Net prior service
credit and
actuarial losses |
|
|
Total |
|
Balances, December 31, 2019 |
|
$ |
(1,473,599 |
) |
|
$ |
(514,271 |
) |
|
$ |
(1,987,870 |
) |
Change in net prior service credit and actuarial losses, net of tax |
|
|
— |
|
|
|
514,271 |
|
|
|
514,271 |
|
Translation adjustment |
|
|
647,632 |
|
|
|
— |
|
|
|
647,632 |
|
Balances, December 31, 2020 |
|
$ |
(825,967 |
) |
|
$ |
— |
|
|
$ |
(825,967 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation adjustment |
|
|
(554,681 |
) |
|
|
— |
|
|
|
(554,681 |
) |
Balances, December 31, 2021 |
|
$ |
(1,380,648 |
) |
|
$ |
— |
|
|
$ |
(1,380,648 |
) |
14. Leases
The Company has operating leases for office and warehouse space and equipment under various arrangements which provide the right to use the underlying asset and require lease payments for the lease term. The Company’s lease portfolio consists of operating leases which expire at various dates through 2026.
Certain of the Company’s lease arrangements contain renewal provisions, exercisable at the Company's option. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.
The Company determines if an arrangement is an operating lease at inception. Leases with an initial term of 12 months or less are not recorded on the Balance Sheet. All other leases are recorded on the balance sheet with right-of-use (“ROU”) assets representing the right to use the underlying asset for the lease term and lease liabilities representing the obligation to make lease payments arising from the lease.
36
ROU assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term and include options to extend or terminate the lease when they are reasonably certain to be exercised. As most of our leases do not provide an implicit rate, the present value of lease payments is determined primarily using our incremental borrowing rate based on the information available at the lease commencement date. The incremental borrowing rate is the rate of interest that we would have to pay to borrow on a collateralized basis over a similar term on an amount equal to the lease payments in a similar economic environment. Lease agreements with lease and non-lease components are generally accounted for as a single lease component. The Company’s operating lease expense is recognized on a straight-line basis over the lease term. Operating lease cost was $1.3 million for the twelve-months ended December 31, 2021. For the twelve months ended December 31, 2021, $0.5 million was included in cost of goods sold and $0.8 million was included in selling, general and administrative expenses in the accompanying condensed consolidated statements of operations.
Information related to leases (in 000’s):
|
|
Twelve months ended
December 31, 2021 |
|
Operating lease cost |
|
$ |
1,265 |
|
Operating lease - cash flow |
|
$ |
1,098 |
|
|
|
|
|
|
Non-cash activity: |
|
|
|
|
ROU assets obtained in exchange for lease liabilities |
|
$ |
1,760 |
|
|
|
December 31, 2021 |
|
Weighted-average remaining lease term |
|
4.0 years |
|
Weighted-average discount rate |
|
|
5 |
% |
Future minimum lease payments under non-cancellable leases as of December 31, 2021:
2022 |
|
$ |
1,128 |
|
2023 |
|
|
991 |
|
2024 |
|
|
744 |
|
2025 |
|
|
644 |
|
2026 |
|
|
157 |
|
Total future minimum lease payments |
|
$ |
3,664 |
|
Less : imputed interest |
|
|
(300 |
) |
Less : present value of lease liabilities - current |
|
|
(1,000 |
) |
Present value of lease liabilities - non-current |
|
$ |
2,364 |
|
37